Malpiede v. Townson
Supreme Court of Delaware
780 A.2d 1075 (2001)
During a bidding contest for Frederick's of Hollywood, its board accepted Knightsbridge Capital's $7.75-per-share offer conditioned on strict limits on entertaining other bids, then rejected a subsequent $9-per-share offer from Veritas, citing those agreed-upon restrictions; Knightsbridge went on to complete the acquisition. Frederick's articles of incorporation included a DGCL § 102(b)(7) exculpatory provision shielding directors from personal liability unless they acted in bad faith or breached their duty of loyalty, and disaffected shareholders (plaintiffs) sued the directors, alleging one director received improper personal benefits and that the board collectively favored Knightsbridge unfairly over the higher Veritas bid. The trial court dismissed the suit for failure to state a claim given the exculpatory provision, and the shareholders appealed.
Whether a fiduciary-duty complaint against directors is subject to dismissal, where the corporation has an exculpatory provision, if the complaint does not adequately allege breach of the duties of good faith or loyalty.